1st Cut of Union Budget 07-08

General


Dividend distribution tax raised to 15% from 12.5%: negative for all dividend paying companies

Dividends distributed by money market mutual funds and liquid mutual funds will now be paying dividend distribution tax at 25%.


Levy of additional 1% cess for funding of secondary and higher education

Cement

Overall impact : Negative

Increasing excise duty from Rs400 to Rs600 for price above Rs190 per bag and reducing from Rs400 to Rs350 is a negative as cement price per bag in most of the places is above Rs190 at present. With demand strong we believe the increase in the duty would be largely passed on, but continous efforts by the Government to curb the price increase and reduce the profitability of the industry is visible.

Increase in allocation for Bharat Nirman, Rural housing and roads is positive for the industry from demand side.

Oil and Gas, Petrochemicals - overall positive

Ø Reduction in ad valorem excise duties for petrol and diesel - positive for Oil Marketing Companies IOC, BPCL and HPCL.
Ø Reduction in custom duties on Plastics, polyester and intermediates - positive for Reliance Industries, GAIL, IOC and IPCL
Ø Infrastructure status to cross-country pipeline projects - positive for Reliance Industries, GAIL, GSPL, Gujarat Gas and Indraprastha Gas Ltd.
Ø Extension of service tax to mining of oil and gas - marginally negative for ONGC, Reliance, and Cairn India

Healthcare: Positive


Announcement

Impact on Companies
Healthcare allocation increased

Positive for Apollo Group, Max India
Allocation for immunization program

Positive for Panacea Biotech
HIV eradication to gain momentum

Positive for MNC, Cipla, Wockhardt
150% weighted average tax deduction for R&D expenses extended for 5 years

Positive for research driven pharma companies-Ranbaxy, DRRL, Sun Pharma, Cadila Healthcare, Biocon, Glenmark
Peak customs duty on chemicals reduced from 12.5% to 7.5%

Positive for API manufacturing companies
Removal of clinical trials from service tax net

Positive for research and CRO companies
Medical insurance deduction u/s 80DD increased to Rs15,000

Positive for Apollo Group, Max India as more population would be covered by medical insurance

Telecom: Positive


Announcement

Impact on Companies
Committee to be formed to move towards a uniform licensee fee regime from 6-10% to an estimated 6%

Positive for all telecom companies, benefit to



IT

Impact - Negative (as surprising, the impact can be deeper and sharper)

· Higher education allocation by 34.2% to Rs32,352cr to be positive for IT education companies like NIIT, Aptech, Educomp Solutions, etc.
· Almost doubling of e-Governance outlay both at centre and state level to benefit companies like Vakrangee to major extent and TCS and other Government focused companies to some extent
· MAT to be applied to IT companies to 11.2% on book profits
· Inclusion of ESOPs under the FBT net negative for the sector
· Non-extension of STP benefits beyond 2009 negative especially for medium & smaller sized IT companies


Steel

Impact - Positive

· Custom duty unchanged at 5% as expected
· All coking-coal import irrespective of ash content to be fully exempt from custom duty to be positive across the sector as most companies (small & large) have exposure to coking coal imports
· Export duty of Rs300/MT levied on iron ore and concentrates: Negative for Sesa Goa esp. and large integrated players like Tata Steel and SAIL to some extent.


FMCG - Overall impact - Positive
Ø No implementation of VAT on cigarettes. Specific excise duty on cigarettes increased by about 5%.
Ø Excise duty (excluding cess) on biris, will be raised from Rs7 to Rs11 per thousand for non-machine made biris and from Rs17 to Rs24 per thousand for machine made biris. There is an exemption from excise duty for unbranded biris up to 20 lakh biris in a year.
Ø Pan masala containing tobacco will continue to bear an excise duty of 66%. However, in the case of pan masala not containing tobacco, the duty will be reduced from 66% to 45%.
Ø A Special Purpose Tea Fund launched for re-plantation and rejuvenation of tea. Government plans to soon put in place similar financial mechanisms for coffee.
Ø Excise duty biscuits fully exempted whose retail sale price does not exceed Rs50 per kilogram.
Ø Excise duty on all kinds of food mixes including instant mixes including idli and dosa mixes fully exempt.
Ø Duty on food processing machinery reduced from 7.5% to 5%.
Ø Crude as well as refined edible oils exempt from the additional CV duty of 4%.
Ø Duty on sunflower oil, both crude and refined reduced by 15 percentage points.
Ø Excise duty on parts of footwear reduced from 16% to 8%.


Power sector: Neutral

The government under achieved its Xth Five Year Plan target in capacity addition which was targeted initially to be 46,000MW, then lowered to 41,100MW and finally to 34,024MW. It achieved 23,163MW during the period. It has not made mention of the addition during the year except that they expect two more UMPP's to be allotted by July 07.

Tata power, reliance energy, lanco, ntpc to be likely beneficiaries - dependent on competitive bidding route.

Increase in budgetary support for APDRP from Rs650crs in 2006-07 to Rs800crs next year, will help to monitor usage of power being consumed by the users - meters could likely benefit.

Meter mfg companies viz genus, emco to be likely beneficiaries


Upped allocation under Rajiv Gandhi Grameen Vidyutikaran Yojana from Rs3000crs to Rs3983crs.

No mention made for the years target in capacity addition


Pipe mfg: Positive

Section 80IA of the Income Tax Act lists the infrastructure facilities that are entitled to tax concessions. Cross country natural gas distribution network, including gas pipeline and storage facilities integrated to the network. Pipe manufacturing companies to be likely beneficiaries


Customs duty cut announced in Jan on nonferrous metals remain same. Benefit to the capital goods segment.


Real Estate: Neutral

Service tax on Office space rentals
Impact- Negative. This is likely to increase rentals in the Metro cities which are already in the range of Rs300-350. This will negatively impact commercial real estate demand in metro cities and would percolate in the lower tier cities in the long run.

No mention of extension of Sec80 (IB) 10 for qualified projects
Impact- Neutral. This was on expected lines and we do not see this as a negative. Qualified projects receiving approval after March 2007 will not receive deduction in income tax.

Tax exemption on hotels and convention centres in the NCR region - Positive
Impact- Positive. Many NCR based real estate developers are in the process of developing 3-4-5 star hotels over the next 2-3 years. The government has provided a 5 year tax holiday for companies developing 2-3-4 star hotels and convention centres with minimum sitting capacity of 3000 persons and operational by March 2010 in the NCR region.



Banking: Neutral

No mention of lowering the maturity ceiling on tax free deposits from current 5 years
Impact- Neutral. There has been no mention on lowering maturity from the existing 5 years ceiling on tax free bank deposits. This would have increased deposit mobilization in the banking sector.



Infrastructure & Construction

Overall impact: Positive

National Highway allocation increased to Rs126bn from Rs99.55bn

Outlay for accelerated irrigation benefit programme at Rs110bn

Allocated Rs40bn for rural roads

Scheme to use forex reserves for infrastructure development

MF's allowed to launch dedicated infrastructure funds

31.6% increase in allocation Bharat Nirman programme

Additional 2.4mn hectares of irrigated area to be created by FY08

Golden Quadrilateral nearly complete, targeted completion for NSEW 2009

NHDP phase-III, V and VI in advanced stages